QUESTIONS (1 - 1); its cost of equit the factor would Assume for each 01 How would each of the following affect a firm's cost of aeot, To and its WACC? Indicate by a plus (+), a minus (-), or a zero (0) if the factor raise, lower, or have an indeterminate effect on the item in question. Assume for answer that other things are held constant, even though in some instances this we probably not be true. Be prepared to justify your answer, but recognize that severa the parts have no single correct answer; these questions are designed to stimulate thought and discussion. EFFECT ON ro(1-T) Is WACC a. b. C. d. e. g. The corporate tax rate is lowered. The Federal Reserve tightens credit. The firm uses more debt; that is, it increases its debt/assets ratio. The dividend payout ratio is increased. The firm doubles the amount of capital it raises during the year. The firm expands into a risky new area. The firm merges with another firm whose earnings are countercyclical both to those of the first firm and to the stock market. The stock market falls drastically, and the firm's stock price falls along with the rest Investors become more risk averse. h. i. por TU CUSL UP Capital 351 EFFECT ON ro(1-T) WACC The firm is an electric utility with a large investment in nuclear plants. Several states are considering a ban on nuclear power generation